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Which Way for the Euro?

1:32 PM, Aug 5, 2011 • By DALIBOR ROHAC
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Fortunately, a central European government still remains a somewhat distant idea, and it would be a tough political sell in the core countries of the eurozone. However, as we have seen in the past, European integration proceeds stealthily and is very successful at sidelining the standard democratic political processes.

There is also a third option, however. European political elites can allow for a systematic fiscal and monetary devolution. In this scenario, no transfers between European countries take place at all. The club med countries restructure their debts in an orderly way and leave the Euro to regain their international competitiveness. The eurozone is reserved only for structurally similar countries of Western and Central Europe, falling roughly within the German economic space. The broader EU returns to its roots as a free trade zone, and does not attempt to directly tackle, by political means, conflicts over economic resources between various interest groups.

We should hope for this third option. After all, democratic politics at the level of the nation-state is our best bet for keeping conflicts between interest groups within reasonable bounds. Unfortunately, this scenario may be the least likely of the three – at least in the immediate future. European politicians have invested too heavily in the edifice of the EU. Moreover, there are those who have a vested interest in keeping the present EU-wide redistribution schemes running.

As a result, Europe’s future is largely unpredictable. However, knowing that an economic meltdown or a European superstate are the two most likely scenarios is hardly comforting.

Dalibor Rohac is the deputy director of Economic Studies at the Legatum Institute.

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